Conference 7.286::digital

HP have also mentioned this to my customer here in the U.K.
I challenged them by asking why on earth would we file for 
Chapter 11 when we have $1.5bn in cash.  After a few days
they told my customer that if Digital file for Chapter 11
then they do not have to pay any of the alleged 20,000
employees severance pay.

This may be true in the US, but it doesn't hold water in
Europe.  To me its just another malicious rumour spread
by HP.

We're beating HP at everything we tackle at the moment.

Let's keep it up.

Randall

	This rumor has been around (internally) for the last couple
	of months. The more I hear it from (different) sources, the more
	I wonder if there is anything to it? Is there any way to "offically"
	check into this? If HP is saying this to their/our customers, wouldn't
	they lose "credibility" with the customer, if it didn't happen? Why
	would they risk that? Just thinking out loud.

	Rick

    re .1:
    
�Chapter 11 when we have $1.5bn in cash.  After a few days
    
    I'm not sure we still have that $1.5E09...

    Hi Dave!
    Note 3063 covers the Chapter 11 topic.
    The most recent of interest is 3063.112, which covers warnings of
    financial instablity.
    Perhaps this is the basis of the rumour from HP, etc.
    I believe IBM, HP, etc. are scared of Digital and actively trying to
    supress any chance of company turnaround, par for the course really.
    Question is will any of us be around to continue the turnaround, which
    *is* happening!
    Keep up the good work ;-)
    	       	       		Phil.

    One good response to your customers might be to challenge the integrity
    of HP's and Sun's reps on that statement.  The validity of such a statement
    will quickly be evident (or not).  
    
    Pin them to it and don't let the customer forget they said it. Relate
    their integrity on this statement with every other statement they make
    about us or our products.  
    
    Sounds like good ammunition to me.
    
    -- Kevin
    

Ask them if they'd like to compare balance sheets.  Particularly with SUN.

Bob

re:                 <<< Note 3201.1 by WOTVAX::RANDEE::Morrison >>>

>			if Digital file for Chapter 11
>then they do not have to pay any of the alleged 20,000
>employees severance pay.

I suppose they also wouldn't have to make good on that liability known
as "accrued vacation pay owed".

-Jack

    
    
    Just say, oldest trick in the book.  When you cannot match technology,
    you start attacking personally.
    
    
    
    Mike

    I can't understand why anyone would be surprised at this. If *you* were
    a SUN or HP rep, what would *you* do? We're making such a pig's ear of
    our public "face" at the moment, I can't imagine the competition doing
    anything less than play on our troubles, real or apparent.
    
    Laurie.

Well...maybe to look at it from another perspective...The German subsidiary is,
technically, already bankrupt.  The only thing that is keeping management from
*having* to file bankruptcy is the fact that Coporate has placed itself behind
all other creditors (in German a: Rangr�cktrittserkl�rung).  Should the Corp-
oration want to, though, all they would have to do is say: "we want our 300
Million DM" and the management here would have to proceed directly (do not 
pass GO) to bankruptcy court (or whatever you call it).

So, although the corporation may not be bankrupt (yet), they could
force Germany
into bankruptcy at any time.  Knowing how expensive it is for Digital Germany
to lay people off, the temptation may be too much to resist.  Afteral, a bank-
rupt company can't make big severance payments.

Rob
(who thought that huge severance payments would shock even the bean-counters
into looking for an alternative to massive layoffs...oh well...)

    Re: .10
    
    > Well...maybe to look at it from another perspective...The German
    > subsidiary is, technically, already bankrupt.
    
    I know German management is saying this, but I don't buy the argument.
    Digital naturally and quite legally sets up its international cash
    flows so that countries with high tax rates like Germany tend to break
    even fiscally or make a loss. Profits (in the days when Digital was
    making them) would end up in Digital Equipment Corporation in USA and
    not in Digital Equipment GmbH in Germany. So it's not surprising that
    Digital Equipment GmbH doesn't have the cash reserves to carry itself
    through at the current time without arranging for some of the cash
    reserves of the Corporation to be made available to it.
    
    Because Digital uses intercompany pricing to optimise its tax situation
    it has two sets of reporting metrics - "fiscal" and "management". The
    fiscal cost of a product to a foreign subsidiary is the MLP minus a large
    percentage. The management cost of a product is its actual
    manufacturing cost. The difference between the two is most extreme for
    software licences. A foreign subsidiary may be charged say $10000 for a
    software PAK (fiscal cost) whereas the manufacturing cost of the PAK is
    $8 (management cost). So the plant which manufactures the PAK makes
    $9992 profit for printing a sheet of paper. That's why Digital
    manufactures software in countries with low tax rates like Ireland.
    (Microsoft does as well.) 
    
    Digital Equipment GmbH would only be allowed to go bankrupt if Digital
    Equipment Corporation made a conscious decision for this to happen.
    This would mean that Digital would abandon the German market place,
    which would be a momentous decision for Digital to make, with (the now
    united) East/West Germany having the largest population of any country
    in Europe and with more than half of Digital's world-wide revenues
    resulting out of European sales.
    
    Mike

    I believe that the saying "Perception is the only reality" covers the
    competitive scenario. Should time prove the allegations false, "weasel"
    words abound for reps to back away from their assertion Digital is
    going under. However, for a period of time they may gain from the
    uncertainty generated in a particular account situation.
    
    Dave

re Note 3201.12 by KAOU93::CARSON:

>     I believe that the saying "Perception is the only reality" covers the
>     competitive scenario. Should time prove the allegations false, 

        Oh, but time will prove (the spirit of) the allegation to be
        true!

        Digital may not actually enter formal bankruptcy, but the
        major divestitures and changes, including continued
        down-sizing, which reasonably may be expected in the next
        quarter or two will be read by many customers and potential
        customers as almost the same kind of disruption and wholesale
        change, including dropping entire lines of products and
        business, associated with formal bankruptcy.

        Bob

    Folks, Chapter 11 does not mean the end of the world.   Chapter 11 is a
    protection as set by Bankrupcy Law to protect an individual (person or
    corporation) from creditors (present or future).
    
    Basically what Chapter 11 does is schedule your liabilities in a way
    that is feasible for payment within reasonable terms and conditions.
    This means that if for example your mortage payment is due the 1rst,
    the Bankrupcy court will move it to the 15, 20 or end of the month
    to accomodate other payments and still comply with your duties and
    responsabilities as a creditor.
    
    The only important portion is that you will turn over the financial
    (specifically cash, cash reserves, account receivables, account
    payables and long term debt) to a cour appointed syndicate.   This 
    syndicate will have a 'president' that will continually assess your
    ability to improve the schedule.  This syndicate will closely monitor
    the cash disbursements against cash receipts.   The syndicate will
    order a monthly (sometimes weekly) amount of cash disbursements that
    the company can afford per the specific financial situation.   What
    this means is that you will be constrained in your investments (or 
    disbursements) until you are out of Chapter 11.
    
    Chapter 11 does not mean that you will not pay.   Chapter 11 means that
    you will pay all your present and future debts in a way where your
    present and future operations are not jeopardize ('Going Concern
    Concept').

  That's exactly what they told us at the last company I worked for.  You can
  now read about it in a book on the subject of failed computer companies.

  	mikeP

    re .14
    
    Or until you declare Chapter 7 (no assets).
    

    	Re: 14
    
    	Actually, from the sound of it, maybe we're already IN Chapter 11!
    Sounds strangely familiar to me. Unfortunately, I've finished the book,
    and the ending isn't pretty.

    German press clipping as of today contains a document authored by
    JPMorgan Credit Research. The document is dated April 26. and explains
    JPMorgan's view on Digital's financial situation.
    
    Key messages from this document are:
    
    - Digital has virtually no near-term refinancing risk
      -- Short term debt is $10.62 million
      -- Long term debt has maturity in 1997, 2002, 2012 and 2032
      -- The company has over $1 billion cash at hand
      -- The company has untapped credit facilities of $1.2 billion
    
    - JPMorgan expects that Digital will likely take a restructuring charge 
      of between $1.0 and $1.5 billion to lay of 15.000 to 20.000 workers.
    
    - JP Morgan believes "that at current levels, Digital Equipment bonds
      are attractive and provide for significantly more upside than
      downside."
    
    Given all the rumours in this conference and the press, this document
    is a very positive and substantiated assessment of Digital's financial
    situation. 
    
    It should be helpful when dealing with those "Chapter 11 rumours"
    
    German employees should be able to get a copy from 
    
    	Volker Holzapfel @VIL, DTN 775-3349
    
    I don't know about other sources in the company, but Corporate Finance
    should be able to help as well.
    
    Klaus
    

    
    
    Thanks for the info, Klaus.  It's good to see.
    
    
    
    Mike

    Under Chapter 11, would Digital be expected to pay accrued vacation to
    employees who are let go?
    

    NO!!  Assets are frozen!

What about after the court approves the reorganization plan?  What happened
with Wang?

    Re:21 >>>> Assets are frozen
    
    		NOT TRUE !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
    
    	Assets are not frozer.  However as I already stated in my previous
    	note, the court appointed syndicate establishes a limit to cash
    	disbursements depending on cash receipts and loan payments as
    	computed by the syndicate.   You MUST comply with all current
    	and future obligations.  It is important to note that some
    	obligations have a higher ranking than others, the first obligation
    	for a corporation is the payroll and payroll related expenses which
    	includes accrued vacations, and the like.
    
    
    	Just don't worry....be happy.

re: .23

I've been through Chapter 11 before in another life, and I can assure
you that accrued vacation gets lumped in with all of the rest of the
unsecured debt.  If an employee gets any of it at all it will be less
than the full amount and it will take years before he/she sees any of
it.

-Hal

    Re:24
    
    	It depends on the state where the company was incorporated.
    	Some states have incorporation laws that give more importance
    	to the employees and some to the secured creditors.  If
    	we incorporated in Mass. as I think we did, do you know what
    	the Mass. incorporation laws call for in case of bankrupcy ?
    	We have to find out the way in which the law give preferrence
    	to creditors, if it is secured creditors first, then it should be:
    
    	1) Goverment Debt (Income Tax, Unemployment, etc.).
    	2) Secured Debt (Loans, Bonds, Accounts Payable (if secured), etc.)
    	3) Preferred Stock (if it has it in the prospectus).
    	4) Employees (Payroll, Fringe Benefits)
    	5) Other (Non Secured, if the company has enough cash).
    
    	Can someone find out what the Mass. law states ????
    

re: .25

You may be right.  My experience was with a company incorporated 
in Maryland.  I also would be interested to know how Massachusetts's
laws are on the subject.

-Hal

    When Wang went Chapter 11, all accrued vacation was null
    and void, and not paid to employees.  My husband USED to work
    for WANG, and got caught it the Chapter 11 episode.  Don't know if
    that was/is the law, just that employees were not paid for
    accrued vacation.
    
    Val

Actually the lawyers' fees have the highest priority in a bankruptcy proceeding.
 After all what lawyers would handle it if they weren't guaranteed of getting
paid!

    RE .28
    Maybe all the lawyers currently on Digital's payroll ?
    

    Does anyone knows where WANG Laboratories was incorporated ??????
    
    

        
    
       I believe the "lawyer's fees" you refer to are the bills of the
    administrator of chapter 11.  Not lawyers in general.  If this were
    not the case, it would be a tad difficult to find anyone noble enough
    to be the administrator
    
    Ken

    The following reply has been contributed by a member of our community
    who wishes to remain anonymous.  If you wish to contact the author by
    mail, please send your message to ROWLET::AINSLEY, specifying the
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    your name attached  unless you request otherwise.

    Bob - Co-moderator DIGITAL

=============================================================================

Re: .27

This was the explanation (with permission to post) given by someone at Wang:

> When Wang went Chapter 11, all accrued vacation was null and void, and not
> paid to employees.  My husband USED to work for WANG, and got caught it the
> Chapter 11 episode.  Don't know if that was/is the law, just that employees
> were not paid for accrued vacation.

It's true, but only in this (and one other) special case.  The day we filed
for chapter 11, all accumulated vacation time became "pre-petition" time.
All time accumulated after the filing was post-petition time.  Everyone who
remained an employee could take pre-petition or post-petition vacation time
as normal vacation - they were the same, as far as actually taking time
off.  But people laid off after the date of filing did *not* get paid for
accumulated pre-petition time, only post-petition.  (Taking vacation time
used up pre-petition time first, so people didn't start consuming post-
petition time until all their pre-petition time was gone.)

This is normal for chapter 11 filing.  At the date of filing, the company
becomes a new company, and a lot of old debts are wiped out, including owed
vacation time.  Anything the company does beyond that is voluntary on its
part, and can only be done with court permission, since the court has to
approve anything the company does to honor pre-petition debts.  For example
Wang had to get court permission to pay pre-petition employee medical
expenses that people hadn't claimed until after the chapter-11 filing.
There were some nasty bits involving travel expenses too.  Anything that
involves transferring a pre-petition debt to the new post-petition company
requires court permission, and is a big deal.

Needless to say, after Wang's filing (and the first layoff which happened
immediately after the filing, which is apparently when the previous
poster's spouse got it), everyone went on vacation to use up their
accumulated time, in case they got hit next.

re .31

Actually, my earlier response about lawyers' fees referred to the priority order
in a Chapter 7 liquidation.  My understanding is that the fees of the lawyers
who handle the liquidation have top priority.  Any other laywers to whom the
firm owes money, probably just become general creditors.